2. Background on Medicare, Supplemental Coverage, and TSSD

2. Background on Medicare, Supplemental
Coverage, and TSSD
This chapter provides descriptions of the health insurance coverage options
available to individuals eligible to participate in the TSSD program.
Health Insurance for Military Retirees (Prior to TFL)
The enactment of TFL substantially changed the health insurance options
available to Medicare-eligible military retirees. The following sections describe
options, including Medicare and Medicare supplements, available prior to TFL.
Title XVIII of the Social Security Act, designated “Health Insurance for the Aged
and Disabled,” established a health insurance program for aged persons
(commonly known as Medicare) to complement the retirement, survivors, and
disability insurance benefits under Title II of the Social Security Act. Entitlement
for Medicare is specified in 42 CFR 406. Most persons age 65 or over are eligible
for Medicare.1
Medicare has traditionally consisted of two parts: Hospital Insurance (Part A)
and Supplemental Medical Insurance (Part B). Part A coverage is generally
provided automatically, free of premiums, to eligible persons. Beneficiaries must
pay deductibles and copayments for inpatient hospital care and copayments for
care in skilled nursing facilities. Coverage under Part B is based on voluntary
enrollment and payment of a monthly premium ($54 for 2002). Eligible
beneficiaries who do not enroll in Part B when they reach age 65 may do so at a
later date. However, the Part B premium goes up 10 percent for each year after
age 65 the beneficiary was not enrolled. For most outpatient medical services,
Part B requires beneficiaries to pay 20 percent coinsurance, except for mental
1In addition, the following groups also became eligible for Medicare in 1973: persons entitled to
Social Security or Railroad Retirement disability for at least 24 months (not applicable to the military
retiree population), most persons with end-stage renal disease (ESRD), and certain otherwise noncovered aged persons who elect to pay a premium for coverage.
health services, which require 50 percent coinsurance. Medicare does not
currently cover outpatient prescription drugs.
The Balanced Budget Act (BBA) of 1997 also introduced a third part, sometimes
known as Part C, the Medicare+Choice program, which expanded beneficiaries’
options for participation in private-sector health care plans.
Supplementing Medicare
To address the gaps in Medicare coverage, many Medicare beneficiaries,
including Medicare-eligible military beneficiaries, have health insurance
coverage that supplements Medicare. They obtain such coverage from a variety
of sources, including private Medicare supplemental plans (commonly referred
to as “Medigap” plans), plans sponsored by former employers, Medicare+Choice
HMOs, Medicaid, and/or other public programs.
Private Medigap plans are standardized, with ten different benefit packages,
referred to by the consecutive letters A through J.2 All of these Medigap plans
eliminate Medicare’s coinsurance for inpatient care under Medicare Part A and
outpatient care under Part B. In addition, they also reduce or eliminate out-ofpocket costs for other Medicare-covered services, with the types of services
varying by plan; they also extend Medicare’s benefit limits for certain services
and/or cover some services that Medicare does not cover, with the types of
benefits covered and the scope of coverage limited by the plan. Three of the plans
(H through J) provide coverage for prescription drugs, up to a set dollar limit
per year.
Employer-sponsored supplemental plans serve functions that are similar to those
of private Medigap, although they generally include modest (although lower
than Medicare’s) cost-sharing requirements. At the same time, employersponsored plans generally include more-comprehensive coverage for
prescription drugs than do private Medigap plans.
In addition, some Medicare beneficiaries enroll in HMOs under the
Medicare+Choice program. Such plans reduce out-of-pocket expenses relative to
fee-for-service Medicare; they also may offer additional benefits, such as
transportation, eyeglasses, coordination of care, or prescription drugs. Premiums
for Medicare+Choice plans tend to be substantially lower than the premiums for
2 Summary information on the benefits in each of the ten standardized Medigap plans
is available at http://www.medicare.gov/mgcompare/Search/StandardizedPlans/
Medigap plans. In recent years, many Medicare HMOs have withdrawn from the
market. While most Medicare beneficiaries living in urban areas continue to have
a Medicare HMO option, many beneficiaries in less urban or rural areas are not
served by a Medicare HMO. Furthermore, even where Medicare HMOs remain
available, the relative generosity of their benefits has decreased while the out-ofpocket costs for members have increased.
Private Medigap plans require beneficiaries to pay premiums, which vary by
type of plan and, for most beneficiaries who enroll after age 65, by age and/or
health status. Only three of the ten standardized Medigap policies include any
prescription drug coverage; two of these currently have an annual benefit limit of
$1,250, and the third has an annual limit of $3,000. We note that, historically,
affinity organizations such as The Retired Officers Association and USAA, an
association that provides insurance to military members and their families,
offered basic Medigap plans to military retirees without medical underwriting.
However, these offerings are limited to plans A through G, i.e., those without
any prescription drug coverage. Employer-sponsored Medicare supplement
plans may also require premiums, but this varies by employer. Medicaid and
most other public programs require no premiums, but eligibility is based on
beneficiaries’ economic and/or health status. Medicare HMOs may also require
premiums, which vary by plan.
Distribution of Health Insurance Coverage Among
Military Retirees
We present the distribution of health insurance patterns for the TSSD population
in subsequent sections. However, the two TSSD catchment areas may not be
representative of the overall population of Medicare-eligible military
beneficiaries, and we know of no definitive information on the nature and
prevalence of Medicare supplemental coverage or Medicare+Choice enrollment
in that population. For the general Medicare population, data suggest that
relatively few Medicare beneficiaries have only Medicare (Table 2.1). For
instance, the majority of Medicare beneficiaries whose income is above the
poverty line have private supplemental insurance, via either a former employer
or a Medigap policy. Roughly 11 percent have only Medicare. We note that Table
2.1 does not address the case of Medicare-eligible military retirees who live in the
catchment areas of MTFs and receive care there; such care is provided at no
charge to the beneficiary on a space-available basis.
Data from RAND’s evaluation of the TRICARE Senior Prime Demonstration
(another demonstration conducted in other locations, not to be confused with
Table 2.1
Health Insurance of Medicare Beneficiaries Aged 65+, 1997
(% of Medicare Beneficiaries)
Medicare HMO
Medicare only
<=100% of
100%–200% of
>200% of
NOTE: Columns may not sum to 100% due to rounding. The Employer/retiree row includes
both beneficiaries who have supplemental insurance from a former employer or union and those who
are still working and whose employer is their primary source of insurance.
SOURCE: Urban Institute analyses of 1997 Medicare Current Beneficiary Survey, 2001.
TSSD) suggests that similar fractions of military retirees and other Medicare
beneficiaries, respectively, were enrolled in Medicare+Choice plans in
demonstration catchment areas prior to the demonstration.3 It seems plausible
that the fraction of military retirees who are covered by employer/retiree
benefits may be lower than that for civilian Medicare beneficiaries due to
different work histories (i.e., career employment with an employer—the DoD—
that did not offer such coverage prior to TFL). RAND’s TRICARE Senior Prime
Demonstration evaluation also reported that approximately 7 percent of eligible
beneficiaries in demonstration catchment areas were enrolled in Medicare Part A
but not Part B because of the cost of Part B and beneficiaries’ intentions to receive
care from MTFs.
As noted earlier, TSSD was designed to function as a Medigap policy. Table 2.2
summarizes some of the main features of TSSD, along with the corresponding
Medicare features. Eligible beneficiaries could enroll in TSSD beginning on
March 1, 2000, with coverage under the demonstration beginning on April 1,
2000. TSSD enrollees could disenroll at any time. The program was scheduled to
end on December 31, 2002. However, all beneficiaries eligible for TSSD received
pharmacy benefits under the new national pharmacy benefit program on April 1,
2001, and TFL benefits on October 1, 2001. Table 2.2 also summarizes the main
features of TFL.
3 See Farley et al. (2000). Under the Senior Prime Demonstration program, selected MTFs were
qualified as Medicare+Choice HMOs, and Medicare-eligible military beneficiaries living in the
catchment areas of these MTFs were eligible to enroll in these plans.
Table 2.2
Comparison of Plan Features for Medicare-Eligible Military Beneficiaries
(Fee-For-Service) a
No DoDsponsored
Main eligibility
Age 65 or over and
enrolled in
Medicare Part B
Age 65 or over and
enrolled in Medicare
Part B
Yes, for Part B
None for Part A;
$54/month for
$48/month (and
Part B
participation is
None (but Part B
participation is
Part B
Outpatient costsharing
$100 annual
deductible, plus
20% coinsurance
for most
outpatient care
(50% for mental
health care)
Covers most
Medicare costsharing for
covered services
(coverage is
generally higher
Covers all Medicare
cost-sharing for
Inpatient costsharing
deductible for
hospital care,
plus copayments
per day for stays
longer than 60
days; also
copayments for
skilled nursing
care for stays
longer than 20
Covers most
Medicare costsharing for
covered services
Covers all Medicare
cost-sharing for
Coverage for
TRICARE benefits
not covered by
Yes, with TRICARE
cost-sharing rules
Yes, with TRICARE
cost-sharing rules
Pharmacy benefits
None under
Medicare; no cost
for prescriptions
filled at MTF
pharmacies; Base
realignment and
closure (BRAC)
have access to
Yes, via NMOP and
TRICARE network
pharmacies (TSSD
beneficiaries may
not use BRAC
drug benefits)
Yes, via new
pharmacy benefit
program; no cost for
prescriptions filled
at MTF pharmacies
Table 2.2—Continued
(Fee-For-Service) a
Yes; lower costsharing when
providers versus
Medicare provider
coordination of
benefits with
Yes, for TRICARE
providers; No, for
(provider would
bill patients for the
balance due and
patients would file
claims with TSSD)
payment cap
Yes: $7,500 under
Yes: $3,000
Access to MTF
On spaceavailable basis,
for beneficiaries
in MTF
catchment area;
care provided at
no cost to
Not permitted for
TSSD enrollees
On space-available
basis, for
beneficiaries in MTF
catchment area; care
provided at no cost
to beneficiary
Provider network
clinical care
None for Medicarecovered services;
lower cost-sharing
when using
TRICARE providers
for other services
covered by
aRefers to coverage under fee-for-service Medicare in the absence of supplemental insurance
bFor beneficiaries who did not enroll in Part B at age 65 but join later, their Part B premium is
increased by 10% for each year after age 65 that they were not enrolled.
c Access to MTF primary care will be enhanced for participants in the DoD’s new TRICARE Plus
program. In addition, the temporary TRICARE Senior Prime Demonstration program provided
comprehensive access to MTF care for participants.
Premiums and Cost-Sharing
TSSD benefits were more generous than any of the standard Medigap plans,
particularly in regard to pharmacy benefits. TSSD premiums were $48 per
month. In general, this premium amount was less than beneficiaries would have
to pay for the most comparable private Medigap policy (Plan J), even if they
enrolled at age 65 and were exempt from medical underwriting.
As a Medicare supplemental policy, TSSD covered most cost-sharing that
beneficiaries would face under Medicare for Medicare-covered services. 4 The
exact level of benefit depended on whether beneficiaries received care from
TRICARE network providers (i.e., under TRICARE Extra) or from an authorized
nonnetwork provider (i.e., under TRICARE Standard). For care from TRICARE
network providers, TSSD would pay any cost-sharing remaining after Medicare
(and any applicable Medigap policy) had processed the claim, up to the amount
TRICARE would have paid if TRICARE had been primary payer. For care from
nonnetwork providers, TSSD would pay an amount up to 115 percent of the
TRICARE allowable charge, minus payments from Medicare and any applicable
Medigap policy, up to the amount TRICARE would have paid if TRICARE had
been the primary payer. TRICARE would bear no responsibility for billed
charges in excess of 115 percent of the TRICARE allowable charge from
nonnetwork providers. Beneficiaries would also need to meet applicable
Medicare and TRICARE deductibles for outpatient care.
In addition, TSSD provided coverage for services that were covered by
TRICARE but not Medicare, with TRICARE cost-sharing rules. TSSD also
provided pharmacy benefits with modest cost-sharing rules and no annual
benefit maximum (unlike private Medigap plans).
Other TSSD Characteristics
Several other characteristics of TSSD are worth highlighting because of their
potential impact on enrollment:
First, under TSSD (but not TFL), beneficiaries were required to forgo access
to MTFs. However, the demonstration catchment areas were required to be
located outside any MTF catchment area. In practice, most eligible
beneficiaries were 100 or more miles from the nearest MTF, although a
number of beneficiaries indicated that they drove long distances to use MTF
pharmacies (see Appendix F).
Second, also unlike TFL, Medicare did not coordinate claims with TSSD
automatically as it does with most private and employer-sponsored Medigap
plans. For patients receiving care from TRICARE network providers, the
provider would file the claims. However, for patients receiving care from
nonnetwork providers, in general providers would bill patients for the
4For TSSD enrollees who retained private or employer-sponsored Medigap coverage, TSSD
would serve as third the payer, after the Medicare and the Medigap policy.
balance of the bill (after Medicare’s payment) and patients would have to file
claims with TSSD themselves.
Finally, TSSD was a temporary program, and beneficiaries had no guarantee
that it, or any analogous program, would be available at the end of the
demonstration period (indeed, TFL was not enacted until well into the first
year of TSSD, and it may not have begun to be widely understood by
beneficiaries until the spring of 2001 with the dissemination of materials
from the DoD and retiree organizations). Beneficiaries with private or
employer-sponsored Medigap policies who enrolled in TSSD thus faced the
decision of whether to continue their prior coverage and pay for both, or give
up their prior coverage in favor of TSSD. In the latter case, beneficiaries
risked the possibility that they would not be able to return to their prior plan
or other comparable coverage at the end of the demonstration period, or that
they would face medical underwriting if they did return.
The BBA of 1997 specifies conditions under which Medicare beneficiaries who
enroll in a Medicare+Choice plan or a “similar organization operating under a
demonstration project authority” are guaranteed access to certain Medigap plans.
Text referring to these conditions was included in TSSD documents for
beneficiaries, also available from the TRICARE Web site. However, it is likely
that the provisions of the 1997 BBA do not apply to TSSD because it was not
conducted under the demonstration authority of the Social Security Act (of which
Medicare is a part) and because the relevant section (722) of the 1999 NDAA
makes no mention of Medigap reinstatement.5
This issue is discussed in further detail in Chapter 4, particularly in the context of
the focus groups we conducted with eligible beneficiaries.
Demonstration Sites
The 1999 NDAA specified that TSSD be conducted in two separate areas selected
by the Secretary of Defense. Both areas were to be outside the catchment areas of
any MTFs. One area was to have no Medicare+Choice plan coverage while the
other was to have one or more of such plans available to Medicare beneficiaries.
In practice, areas in and around Cherokee County, Texas, were selected as the
area without Medicare managed-care penetration, while areas in and around
Santa Clara County, California, were selected as the area with active
5This section is in specific contrast to section 721, which authorized the parallel FEHBP
demonstration program in a section titled “Application of Medigap Protections to (FEHBP)
Demonstration Project Enrollees.”
Medicare+Choice plans. Cherokee County, southeast of Dallas, is relatively rural
whereas Santa Clara County, close to San Jose, is relatively urban. Table 2.3
provides information on enrollment of Medicare beneficiaries in Medicare+
Choice HMOs in Santa Clara County in March 2000. See Appendix G for maps of
the two TSSD demonstration areas.
As required, neither demonstration area is in the catchment area (i.e., within
approximately 40 miles) of an MTF. The closest MTF to the Cherokee County
area is at Barksdale Air Force Base in Louisiana, with an average travel distance
of more than 90 miles (although some parts of the demonstration area are within
50 miles of Barksdale). The closest MTF to the Santa Clara County area is at
Travis Air Force Base, with an average travel distance of more than 75 miles. We
note that the Santa Clara demonstration area includes the Department of
Veterans Affairs (VA) Palo Alto Medical Center. Parts of the Cherokee County
area are within 25 miles of the VA’s Lufkin Clinic; the closest VA Medical Center
is in Shreveport, Louisiana.6
We did not formally assess the availability of TRICARE network providers in
either demonstration area. However, we used the on-line TRICARE provider
directory (www.tricare.osd.mil/ProviderDirectory/) to search for family practice
physicians, cardiologists, and oncologists in randomly sampled zip codes in the
Table 2.3
Medicare+Choice HMO Enrollment, Santa Clara County
Plan Name
Aetna US Healthcare of California
Blue Cross of California
California Physicians’ Services
Health Net
Kaiser Foundation
Pacificare of California
Number of
Percentage of
Percentage of
SOURCE: Data on the general Medicare population for March 2000 is from the Health Care
Financing Administration, http://www.hcfa.gov/medicare/mgd-rept.htm.
6 We note that only a small subset of the population eligible for TSSD receive substantial
amounts of care through the VA system. Spouses of veterans do not generally qualify for VA health
care. Veterans are assigned a priority score based on the presence of service-connected disability, the
nature of military service, and income. Roughly 37 percent of the nation’s 26 million veterans have
service-connected disabilities and/or sufficiently low incomes to receive free or very low-cost care
through the VA (Department of Veterans Affairs, 1998). However, this fraction is lower among
military retirees, due to their military pensions. Other veterans may use the VA but are required to
pay substantial amounts for care comparable to Medicare copays and deductibles.
demonstration areas. In the Cherokee County area, it appeared that network
providers were mainly available in the relatively large towns (e.g., Longview,
Palestine, Nacogdoches) but not in more rural areas.7 In the Santa Clara area,
TRICARE network providers appeared to be relatively more prevalent,
particularly in the San Jose/Palo Alto area where beneficiaries were most
concentrated; provider density decreased substantially in the southern areas of
the Santa Clara demonstration area, e.g., around Gilroy and Hollister.
7We note that these three towns are relatively far apart, e.g., 90 miles between Palestine and
Longview, 78 miles between Palestine and Nacogdoches, and 71 miles between Longview and